Costs Over Damages Doesn’t Equal Exceptional

Costs Over Damages Doesn’t Equal Exceptional

What makes a case exceptional? In the matter of ATEN International Co., LTD. v. Uniclass Technology Co., LTD. before the US Court of Appeals for the Central District of California, it was a recently decided that a case is not per se exceptional under 35 U.S.C. § 285 soley because (1) the cost of litigation exceeds plaintiff’s potential damages or (2) a party’s legal argument was rejected on summary judgment.

ATEN and Uniclass sell competing switch systems that allow a user to control multiple computers from a single keyboard. After Uniclass stopped making payments under a license agreement in 2009, ATEN sued Uniclass in 2014 for infringing two patents, seeking damages and an injunction. The district court granted Uniclass’motion for summary judgment on ATEN’s lost profits theory. At trial, ATEN presented a reasonable royalty theory under which its expert testified the maximum recovery of damages was $678,000. A jury found that Uniclass did not infringe the asserted claims and found the asserted claims of one of the patents invalid.

Uniclass moved to declare this case exceptional under 35 U.S.C. § 285, claiming that ATEN

…did not conduct an adequate pre-filing investigation, unnecessarily increased the costs of claim construction, drastically increased discovery costs by frequently changing counsel and infringement positions, and engaged in unreasonable litigation behavior requiring additional motion practice and leading to an expensive and disproportionate trial.

The district court denied Uniclass’ motion, and Uniclass appealed.

Uniclass argued that the district court abused its discretion in denying the motion for an exceptional case because (1) the cost of litigation was greater than ATEN’s potential recovery and (2) the district court failed to weigh ATEN’s baseless lost profits theory that was rejected on summary judgment. The court held there that the district court used appropriate discretion. The Federal Circuit noted that “there is no per se rule that a case is exceptional if litigation costs exceed the potential damages.” It furthered, “litigation strategies motivating a patent suit are many, with monetary damages being one” and cited several reasons infringement suits are filed, including competitive deterrence or to obtain an injunction. Additionally, the Federal Circuit noted that the district court had considered ATEN’s lost profits theory in its decision. While the district court stated that ATEN’s positions were not perfect, they did not amount to an exceptional case determination.

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